Business Savvy

The following article is excerpted from beijingkids Home and Relocation Guide 2011. Download a PDF copy here or visit this page to order a free print copy for home delivery.

Wearing the "trailing spouse" label can get tiring after a while. If you’re itching to get back in the workforce or simply see a great business opportunity, you might want to consider starting your own business. There are many things to consider before you take the plunge.

the big questions

First, weigh the pros and cons. Are you planning to stay in Beijing long-term? Will starting a business be worth the investment of time, energy and money? If you genuinely see an opportunity for you – and hopefully your bank balance – to grow, the next step is to start researching. Talk to people who have already gone through the process. Look at the small businesses in Beijing and see which ones are successful and which ones are struggling. Get an idea of the Beijing small-business world before throwing your hat into the ring.

If you’re not adept at the language or conversant in the most recent Chinese laws, it is good to go to someone who is. Thankfully, there are agents in Beijing who can help you. Ask for referrals from existing expat business owners, or browse the Internet for agencies that provide services tailored to your needs.

all those acronyms

An important first step is deciding what type of business you want to have: a Representative Office, a Wholly-Owned Foreign Enterprise (WOFE), or a Joint Venture (JV). The most common business types are the latter two, since Representative Offices, while the least expensive to start up, cannot engage in direct profit-making operations.

A WOFE gives foreign investors complete control over the business, which some people prefer. This is also the only way you can have a freestanding store location. However, minimum capital requirements and taxes are higher, and WOFEs usually come under more scrutiny from the tax bureau.

Some people opt to establish a JV with a Chinese partner who knows the business culture, language and requirements. However, many foreigners believe that a WOFE is the better way to go unless you know your business partner very well. According to AmCham-China, WOFEs are becoming the favored investment vehicle for foreign investors in China. "Unlike a RO, it gives the foreign investor the ability to engage in direct profit-making activities in China, and unlike a JV, it gives the foreign investor complete control in the operation of the business."

A JV used to be the type of business formation required for new foreign businesses. The process is simple in comparison to opening a WOFE and taxes are lower. Typically, the Chinese partner manages the procedural aspects of the business, dealing with the paperwork. But by its nature, you do not have complete control over your business when operating a JV. You must trust your partner completely before agreeing to a JV. Remember: You should be on an equal footing with your Chinese partner. "You think you know somebody until money is involved," says Clicia Huang of Clicia’s Designs. "Finding the middle ground is what’s really, really hard – finding somebody you trust."

one step at a time

Regardless of which business type you decide on, there are three main procedural steps you need to go through to register your business. First is having the government choose the Chinese name of your business. Second is proving that you have enough capital to start the business. This money will need to be put into a certain account that the government can check to make sure the capital is there for your business startup. While the minimum registered capital (MRC) may be RMB 100,000, if it is thought that your particular business needs more, you may be required to comply. Thirdly, taxes are paid monthly, so any business owner must comply with the forms and processes necessary to keep up with the taxes. Contact your country’s chamber of commerce in China for more information on this process.

It’s important to know that in China, your business license defines specifically what business you are licensed to be in, so make sure the scope of your license is broad enough to cover everything you’re doing now and hope to do in the future.

location, location, location

Shayne Hannum of Shayne’s Treasures suggests you figure out early on where you want your storefront to be and find out if the government will issue a license for that location. Is the space you want to rent long-term or short-term? Are you signing a contract directly with the land or building owner, or are you signing through second and third parties? Understand the possible complexities of the process and evaluate how much money you are willing to invest – and possibly lose – if the deal turns sour.

certifiable

Certain businesses require extra certification. Michelle Hemsin, owner of Bodhi Spa and co-owner of Counting Sheep says a restaurant, for example, will need hygiene certificates. A retail store selling food, alcohol or tobacco will need other types of special certificates. You need to make sure that your type of business has all of the required permits.

business culture

Huang and Hannum are long-term expats (10 and 27 years, respectively) whose businesses have shared the same roof for several years. They caution potential business owners that laws and procedures change; you have to play by the rules of your host country. "As foreigners, sometimes we forget that we’re the guests, regardless of business or day-to-day life," says Huang.

If doing business in China, take your time. Foreigners are often seen by locals as rushing to complete the task, which is when last-minute decisions can favor the wrong side of partnership. Taking the time to build relationships, or guanxi, is very important in China – often more so than the actual business procedure itself. "Face" (mianzi) is also extremely important – as the mark of personal dignity, it can make or break a business relationship.

Keep in mind that in the expat community, customers are always changing. Depending on your business, sometimes that means constantly re-educating customers about your product. Also, the cost of living in China has increased, affecting the overhead and labor costs incurred. Nothing in China is "cheap" anymore, and customers are less likely to spend as freely as before.

This is where that all-important market research will help you. If you’ve found the right type of business, the right location and the right customer, you are halfway there. Hire great staff, and have patience to follow business practices different to those that you might be used to. "It takes time and money to properly train staff and learn about your clientele," says Huang. "But that’s where you’ll see your investment pay off."